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The concept of tax has been prevailing since ancient times. Previously the apex of the socio-political system used to charge a share of crops or liquid money from the citizens. Even in present days, governments impose taxes to generate fiscal revenue.
Indirect tax is named in contrast to direct tax. This means the government does not impose it on an individual's income or the revenue or profit of an entity, unlike direct tax. It is a tax that an intermediate like a retailer collects from a customer. It passes on from one person to another.
It is a tax levied upon goods or services by the Indian government on the end consumer. Typically, the market price of the goods or services includes this tax. Indirect taxes in India are not well defined by any Act. However, our government brings out notifications and circulars to impose indirect taxes on tangible and intangible products.
There are various types of indirect taxes in India. Though all these taxes came under one group after the introduction of GST, the pre-existing types are as follows -
A consumer pays service tax to purchase a service from any entity. The Indian government collects service tax on certain transactions that a service provider performs to sell a service.
State governments collect this tax on a good or service at each point of purchase where a value has been added. This tax is applicable from the point of a raw material purchase to the sale of a finished product.
The Union government collects this indirect tax on an import of a product in India. Timely, it is applicable on products exported from India.
Our government collects excise duty from the manufacturers of goods manufactured in an Indian company. The manufacturers collect it from their buyers through the price of the goods.
Central government imposes this tax on an Inter-state sale and the State government on an Intra-state sale of a good.
State government charges this tax on the purchase of any entertainment-related goods and services. This can be purchasing goods like video games or services like movies, theatres, sports, amusement parks
Securities-Transaction-Tax or STT is levied during purchase of securities via Stock Exchanges of India. These are inclusive of F&O transactions, mutual funds, shares etc.
This type of indirect tax is levied by the State Governments upon immovable property transfer of respective states. Furthermore, the State Government levies tax on legal documents. The rate of stamp duty varies from one state to another.
Below are some salient features of indirect tax -
Below are some benefits of this tax -
It is relatively easier to collect than direct tax. Retailers or service providers add this tax to a product's market price and collect it only upon purchase. Therefore, the initial taxpayer (retailer or service provider) need not worry about recollecting it from their customers.
One of the merits of indirect tax is that it is transferable from one person to another. Since the taxpayer is the end buyer, retailers or service providers can collect it directly at their stores. This makes the collection of this tax time-saving and convenient.
The taxpayers do not need to pay this tax directly from their salary. Our government implements it through the market value of a product and collects it at a point of purchase. Hence, it does not feel like a burden to the taxpayers.
This tax is inversely related to the necessity of any commodity. Therefore, items that serve our essentials and basic needs have a lower tax. Conversely, luxurious and valuable commodities will hold higher taxes.
It is not easy to escape indirect tax as it comes included in a good and service price tag. Therefore, you pay this tax automatically whenever you make a purchase.
An income of less than ₹2.5 lakhs annually does not fall under any income tax slab. People having this earning do not need to pay direct tax. However, they pay our government indirect tax and contribute to the development of our country.
Along with the bright sides, this tax comes with some drawbacks. Below are some
This tax remains regressive to some extent even after the introduction of the Goods and Services Tax. The tax on a commodity or service is the same for all, disregarding the poor or rich. This makes commodities expensive for a poor person and affects his net operating income.
Charging this tax sometimes works cumulatively. Intermediaries tend to charge high tax at every point of transactions, from raw material to the finished product. This increases the price of a commodity.
One of the demerits of indirect tax is it is not favourable for rising industries. As discussed in the previous pointer, intermediaries charge high on the raw material. This leads to a cost of production that discourages industries from expanding.
Some examples of indirect tax are service tax, sales tax, central sales tax, state excise duty, countervailing duty, octroi and entry tax, purchase tax.
Hopefully, the above discourse on indirect taxes' types, features, and pros and cons has helped you gain a clear idea. Keep the above pointers in mind when dealing with payment of any of these tax types.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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